GHG regulation under the clean air act – recent developments

EPA’s GHG Tailoring Rule and Senate ActionOn October 27, 2009, EPA published the Prevention of Significant Deterioration (PSD) and Title V Greenhouse Gas (GHG) Tailoring Rule in the Federal Register, followed by a 60-day public comment period that ended on December 28, 2009. The proposed rule represents EPA’s effort to decrease the number of sources subject to major source permitting for GHGs under the Clean Air Act (CAA). On April 1, 2010, EPA finalized a light duty vehicle rule addressing GHGs, immediately making GHGs regulated pollutants under the Clean Air Act at the existing major source thresholds of 250/100 tons per year (tpy) for the PSD program and 100 tpy for Title V program versus the proposed levels under the Tailoring Rule at 25,000 tpy CO2e.

GHG Bullseye_EQWebEPA received many comments from regulated entities, state and local permitting agencies, and Congress over the implications of the PSD/Title V Tailoring Rule. The Agency attempted to address these comments and devise a practical solution to regulating GHGs under the CAA.

On February 22, 2010, EPA Administrator Lisa Jackson issued a letter to Senator Jay Rockefeller responding to a request by eight U.S. Senators asking about EPA’s greenhouse gas regulatory plans for 2010. In the letter, EPA outlined several decisions made for 2010-2011 regarding the proposed PSD/Title V Tailoring Rule, including the following:

By April 2010, EPA will issue regulations to ensure that no facility will be required to address GHGs in CAA permitting of new construction or modifications before January 1, 2011.

For the first half of 2011, only facilities that already must apply for CAA permits as a result of their non-GHG emissions (i.e., existing major sources) will need to address GHG emissions in their permit applications.

For the second half of 2011 and 2012, EPA is considering increasing the proposed major source threshold to greater than 25,000 tpy CO2e, potentially as high as 75,000 tpy of CO2e or greater.

Additional details on these planned changes to the Tailoring Rule were revealed on March 3, 2010 when Administrator Jackson testified before the Senate Committee on Appropriations. Jackson stated that EPA may increase the PSD/Title V Tailoring Rule emissions threshold from 25,000 tpy to at least 75,000 tpy, or as much as 100,000 tpy for the 2011-2012 period, with possible reduction to 50,000 tpy after 2012. With these emissions thresholds, EPA estimates that 1,700 permits would be required by the end of 2011. By the end of 2013, EPA estimates 3,000 sources may need GHG permits (dependent on the emissions threshold in effect at that time).

In addition, Jackson stated that EPA may require larger sources such as utilities and refineries to obtain a GHG permit if a PSD or Title V application was submitted in the 2009/2010 timeframe. Several commenters urged EPA to refrain from requiring companies currently undergoing the permitting process to amend permit applications to address GHGs. However, Jackson has said that, while EPA would not purposely hold up the issuance of a new permit, since the permitting process for a large source can span years, there may be changes to the regulatory landscape during that time that could affect the permit content.1

Meanwhile, the Senate is taking separate action to delay initial regulation of GHGs byEPA. On March 4, 2010, the Rockefeller bill (or ‘‘Stationary Source Regulations Delay Act”) was introduced in the Senate. If signed, this bill would impose a 2-year delay on stationary source regulation of CO2 and CH4 under the CAA. However, passage of this bill would not prevent EPA from issuing motor vehicle GHG standards.

Additional action in the Senate was taken by Senator Lisa Murkowski. Her resolution (the “Murkowski” resolution) was introduced under the Congressional Review Act on January 21, 2010, seeking to block GHG regulation by overturning the EPA GHG endangerment finding. Unlike the Rockefeller bill, if the Murkowski resolution is passed in the Senate, it would permanently ban EPA from regulating GHGs under the CAA. On March 11, 2010, Murkowski stated that she would wait to see how the Rockefeller bill advances within the Senate before bringing the resolution forward for a floor vote.

CAAAC Addresses GHG BACTUnder the proposed Tailoring Rule, PSD regulation of GHGs under the CAA will generate associated requirements for new and modified GHG emissions sources. For example, with existing regulated pollutants, PSD permitting typically requires a Best Available Control Technology (BACT) analysis where technical and economically feasible controls are considered to establish the required emission rate, air dispersion modeling to demonstrate requirements with the NAAQS, netting, and other requirements. BACT analysis could become quite complex due to multiple pollutants that comprise GHGs and the inextricable link of GHGs to energy usage.

EPA’s Clean Air Act Advisory Committee (CAAAC) met in Washington, DC on February 2-3, 2010 to discuss the initial findings of the subcommittee’s work on addressing BACT for GHGs. These findings were submitted to EPA for review as Phase I of the effort. Phase I work assumed EPA would continue to apply BACT in the same manner as other PSD regulated pollutants (i.e., the “top-down” approach).

The subcommittee workgroup agreed that GHG BACT should apply to new and modified emission units that undergo PSD review for exceeding the significant emission rate (SER). The workgroup did not agree as to whether BACT can or should consider changes to the basic design of a proposed project (i.e., redesign of a fuel oil-fired unit to a natural gas-fired unit). This particular element is important for large power/utility projects – for example, at what point does BACT “redefine the source” or alter the “fundamental business purpose” or “basic design” of the facility? Or, should a natural gas-fired combined cycle power plant have to consider generating the same megawatts through wind, solar or biomass firing? This was tangentially addressed in the Calpine Russell Energy Center PSD permit, issued by the Bay Area Air Quality Management District (BAAQMD) in California (note that a GHG BACT review and a GHG emissions limitation was voluntarily requested by Calpine in the application). The agency determined that solar and wind represented a departure from the “fundamental business purpose” or “basic design” of the proposed power plant. Additionally, the agency noted that the California Energy Commission had domain over selecting the type of power generation that was appropriate for California and that the BAAQMD would not rule on this aspect.2

Conversely, a recent remand of a Region 9 PSD permit for the Desert Rock power plant in New Mexico by the Environmental Appeals Board (EAB) stated that an integrated gasification combined cycle (IGCC) should have been considered in Step 1 of the BACT process and that IGCC does not “redefine the source” by changing the fundamental business operation.3

With regard to economic and technical feasibility, there was a great degree of discussion but little consensus. Perceptions of acceptable cost effectiveness for the BACT analysis ranged widely from $3 - $15 per ton CO2e to $30 - $150 per ton CO2e, the higher end representing the cost for carbon capture and sequestration (CCS).

With regard to CCS, the workgroup did not reach a consensus on feasibility and availability of such technology, particularly whether a site should be forced to consider alternative locations based on the availability of sequestration capacity. Likewise, there was no consensus on the extent or degree of availability before CCS is considered properly “demonstrated,” or which CCS technology can be transferred from one source type to another, and how similar an existing source with CCS must be to a proposed source for the CCS to be transferred. These issues will continually evolve as case-by-base CO2 BACT determinations are issued, and as CCS technology continues to be applied to new sources.

Energy efficiency was considered in evaluating BACT alternatives and setting emission limits. The workgroup recognized that specific energy efficiency limits may be difficult to quantify continuously; therefore, there was no consensus on scope of the energy efficiency considerations. However, examples of energy efficiency requirements were suggested as an equipment specification, or as a monitoring and/or operational procedure that indicates the continual efficiency of a unit.

The workgroup also discussed the viability of “clean fuels” and agreed that EPA should provide guidance on how clean fuels should be considered in the BACT analysis. One area of non-consensus within the workgroup is a concern that using a clean fuel substitute as BACT would lead to redefining/redesigning the source, thus altering the “fundamental business purpose” or “basic design” of the proposed project.

Phase II of the efforts of the BACT workgroup is underway and a report is expected by the end of March on the following items:

The CAAAC will reconvene during its next meeting around May/June 2010.

Planning a Path ForwardA path forward for dealing with the implications of the proposed Tailoring Rule and the findings of the BACT workgroup may be important for companies who are existing major sources (or who may become major sources due to GHGs) and are considering plans for growth or expansion. If a facility plans a major expansion in the next one to two years, and if the regulation of GHGs through the CAA/Tailoring Rule does not become effective until 2011 or later, it may be advisable to pursue the modified permit before the rule becomes effective. However, for facilities that are highly GHG intensive such as power plants, numerous appeals will likely impact the issuance of the permit and it may not be possible to receive the permit before the GHG rules are final.

Many questions remain as to how EPA will address GHG BACT requirements. However, permitting authorities will likely use technical information provided by EPA for initial BACT reviews, while maintaining discretion on a multipollutant strategy.

Trinity highly recommends tracking Tailoring Rule developments and potential new major source emissions thresholds. Depending on when the Tailoring Rule comes into effect, companies will need to evaluate the impacts of a GHG BACT determination on their proposed or modified sources – will this involve fuel switching, additional controls or a requirement for offsets and is it possible to create an abatement cost curve to predict the impacts? Because these requirements may significantly impact the PSD permitting process for many industry sectors, creating regulatory scenarios and assigning potential costs and probabilities to the scenarios are a helpful first step in trying to prepare for constraints imposed by regulation of GHGs under the CAA.

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